Entrepreneurship
Unternehmensgründung im
Informationszeitalter
Lecture 2: Business Plan
Leitung: Prof. Dr. Miroslaw Malek
Betreuer: Peter K. Ibach
HUMBOLDT-UNIVERSITÄT ZU BERLIN
INSTITUT FÜR INFORMATIK
Opportunity
• Types of startup firms:
– 1) mom-and-pop business (marginal firm, life-style firm)
– 2) high potential firm
– 3) foundation firm
• Types 2) and 3) have at least $500,000 in sales and
grow at a rate of minimum 10% per year (p.y.).
• 2) and 3) have much bigger success potential than
mom-and-pop businesses.
• 7 % of 7 million US companies grew over 20% p.y.
• Over 1 % of 7 million (80,000) grew over 50% p.y.
• Venture capital founded firms have a 60 % plus success
rate
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From Ideas to
Successful Business
Success
Business Models
Opportunities
Ideas
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The Window of Opportunity
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The Difference between Ideas
and Opportunities (2)
• 1 - 3 % of ideas are considered opportunities by
VC's.
• A good opportunity must be
– attractive
– durable
– timely
• Pearls (winners) take seven to eight years.
• Lemons (loosers) ripen in about 2 1/2 years
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Sales Volume of
U.S. Companies
• 20% of businesses have sales over $ 1M
• 10 % of businesses have sales over $ 2M
• 1.25 % of businesses have sales over $ 10M
• 0.67 % of businesses have sales over $ 25 M
• (U. S. government data for 1980) In 1990 these
figures have doubled
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One Year Survival
Rates by Firm Size
Firm size
Survival percentage
(employees)
0-9
77.8
10-19
85.5
20-99
95.3
100-249
95.2
250 and more
100.0
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Four-year Survival
Rates by Firm Size
Firm size
D&B study
California
(employees)
(1969-76)
study
(1976-80)
0-19
37.4 %
49.9 %
20-49
53.6 %
66.9 %
50-99
55.7 %
66.9 %
100-499
67.7 %
70.0 %
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Factors (Vc's Perspective)
for Successful Company
• the best entrepreneur and the quality of the team
(people)
• the best entrepreneur and the quality of the team
(people)
• the best entrepreneur and the quality of the team
(people)
• the best entrepreneur and the quality of the team
(people)
• Market potential and marketing
• Idea
• The management team must have quality, depth
and maturity.
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Market Structure
• Market structure is characterized by:
–
–
–
–
–
–
–
The
The
The
The
The
The
The
number of sellers
size distribution of sellers
differentiation of products
conditions of entry and exit
number of buyers
cost conditions
sensitivity of demand to changes in price
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Entry Strategies for
entering Business
•
•
•
•
•
•
Developing a new product or service (innovation)
Developing a similar product or service (imitation)
Buying a franchise
Exploiting an existing product or service
Sponsoring a startup enterprise
Acquiring a going company
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Ways to generate
Ideas: What if ...?
• What if it were longer? or smaller? inside out,
different Material, Color, Thinner, Lighter, Shorter,
etc.
• Turn Problems into Profits (eco Industry, new
Civilization Headaches)
• Visualize (Mental Pictures)
• Identify Needs
• Forced Connections (e. g., Clock Radio and Wrist
Watch)
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Ways to generate
Ideas: What if...?
•
•
•
•
•
•
•
•
Keep a Record of your Ideas ("Creativity File")
Cultivate your Ideas
Be receptive to Ideas
Stop being Practical
Try something new
Be progressive, not regressive
Brainstorming
Improve existing Ideas
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Ways to generate
Ideas: What if...?
•
•
•
•
•
•
•
Brainwriting
Serendipity Technique (“by Chance")
Creative Unhappiness
Mind Mapping
Speak up and listen
Game Strategy Method (Chess, Jigsaw, etc.)
Join Business or Entrepreneurs Organizations
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Mind Mapping
CHOOSING A BUSINESS
5-POINT SCALE ASSESSMENT
INSURANCE
STRATEGIC
PLANNING
SELFASSESSMENT
PERMITS
PATENTS/
TRADE
MARKS
BUSINESS
LOCATION
LEGAL
ISSUES
BUSINESS
IDEA
LICENCES
GENERATING
IDEAS
MARKETING
BUSINESS
PLAN
TAXATION
PPC TECHNIQUE
POSITIVES
POSSIBILITIES
CONCERNS
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PERSONNEL
SWOT ANALYSIS
STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS
FINANCING
Writing and Defining
a Business Plan
• A good definition: A business plan is a
document that convincingly demonstrates the
ability of your business to sell enough of its
product or service to make a satisfactory profit
and be attractive to potential backers.
• A better definition: A business plan is a selling
document that conveys the excitement and
promise of your business to any potential
backers or stakeholders.
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Eight Reasons for Writing
a Business Plan
•
•
•
•
•
•
•
•
To
To
To
To
To
To
To
To
sell yourself on the business - "sanity check".
obtain bank financing.
obtain investment funds.
arrange strategic alliances.
obtain large contracts.
attract key employees.
complete mergers and acquisitions.
motivate and focus your management team.
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Types of Plans
• The Summary Business Plan - up to ten pages
• The Executive Summary - up to two pages
• The full Business Plan - 10 - 50 pages
•
•
•
•
•
The Operational Business Plan - 40 - 200 pages
Getting Started to Write
Brainstorming
Step 1 Posing the Right Questions or Subjects
Step 2 Providing Bite-Size Answers
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What should the Business
Plan cover
•
•
•
•
•
•
•
•
•
Cover Page
Table of Contents
Executive Summary
The Company
The Market
The Product/service
Sales and Promotion
Finances (Cash Flow, Income/Loss, Balance Sheet)
Appendices (e. g., Executives Profiles)
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Alternative Contents
•
•
•
•
•
•
•
•
•
•
Cover Page
Summary
Table of Contens
Introduction
Description of Venture
Marketing Strategy
Financial Strategy
Financial Scenarios
Operating Strategy
Appendices
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Business Plan Targeting
Summary
Stakeholder
Banker
Investor
Issues to
emphasize
Issues to
deemphasize
Length
Cash flow, assets,
Fast growth, hot
10-20 pp.
solid growth
market
Fast growth, potential
Assets
20-40 pp.
Sales force, assets
20-40 pp.
Fast growth,hot
20-40 pp.
large market,
management team
Strategic partner
Synergy, proprietary
products
Large customer
Stability, service
market
Key employees
Security, opportunity
Technology
20-40 pp.
Merger &
Past accomplishments
Future outlook
20-40 pp
acquisition
specialist
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Criteria for evaluating Venture
Opportunities (1)
Attractiveness
Criterion
Higher Potential
Lower Potential
Market Issues
Need
Identified
Unfocused
Customers
Reachable; receptive
Payback to user
Less than one year
Unreachable or loyal to
others
Three years plus
Value added or created
High
Low
Product life
Durable; beyond time to
recover investment plus
profit
Imperfect competition or
emerging industry
Perishable; less than time
to recover investment
Market structure
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Perfect competition or
highly concentrated or
mature industry or declining
industry
Criteria for evaluating Venture
Opportunities (2)
Attractiveness
Criterion
Higher Potential
Lower Potential
Market Issues (continued)
Market size
$100 million sales
Market growth rate
Growing at 30% to 50% or
more
40% to 50% or more;
durable
20% or more; leader
Gross margins
Market share attainable
(year 5)
Cost structure
Low cost provider
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Unknown or less than $10
million sales or multibillion
Contracting or less than
10%
Less than 20%; fragile
Less than 5%
Declining cost
Criteria for evaluating Venture
Opportunities (3)
Attractiveness
Criterion
Higher Potential
Lower Potential
Economic/harvest issues
Profits after tax
10% to 15% or more;
durable
Less than 20%; fragile
Break even
Under 2 years
More than 3 years
Positive cash flow
Under 2 years
More than 3 years
ROI potential
Value
25% or more/year; high
value
High strategic value
15%-20% or less/ year; low
value
Low strategic value
Capital requirements
Low to moderate; fundable
Very high; unfundable
Exit mechanism
Present or envisioned
harvest options
Undefinded; illiquid
investment
Time to:
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Criteria for evaluating Venture
Opportunities (4)
Attractiveness
Criterion
Higher Potential
Lower Potential
Competitive advantages issues
Fixed and variable costs:
Production
Lowest
Highest
Marketing
Lowest
Highest
Distribution
Lowest
Highest
Prices
Moderate to strong
Weak
Costs
Moderate to strong
Weak
Channels of
supply/resources
Channels of distribution
Moderate to strong
Weak
Moderate to strong
Weak
Degree of control:
TE - II - BP -
Criteria for evaluating Venture
Opportunities (5)
Attractiveness
Criterion
Higher Potential
Lower Potential
Competitive advantages issues (continued)
Barrier to entry:
Proprietary protection/
regulation advantage
Response/lead time
advantage in technology,
product, market innovation,
people, location, resources
or capacity
Legal contractual
advantage
Contacts and networks
Have or can gain
None
Resilient and responsive;
have or can gain
None
Proprietary or exclusive
None
Well developed; highquality; accessible
Crude; limited inaccessible
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Criteria for evaluating Venture
Opportunities (6)
Attractiveness
Criterion
Higher Potential
Lower Potential
Management team issues
Team
Competitor`s mind set and
strategies
Fatal flaws
Existing, strong proven
performance
Competitive; few; not selfdestructive
Fatal flaw issue
Weak or solo entrepreneur
None
One or more
TE - II - BP -
Dumb
Business Plan a more detailed
Table of Contents (1)
• Cover Page
• Executive Summary
• Introduction-Industry, the company and its
products
– The industry
– The company
– The products or services
• Market research and analysis
–
–
–
–
–
Customers
Market Size and Trends
Competition
Estimated Market share and sales
Ongoing Market evaluation
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Business Plan a more detailed
Table of Contents (2)
• Marketing plan
–
–
–
–
–
Overall marketing strategy
Pricing
Sales tactics
Service and warranty policies
Advertising and promotion
• Design and development plans
–
–
–
–
Development status and tasks
Difficulties and Risks
Product improvement and new products
Costs
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Business Plan a more detailed
Table of Contents (3)
• Manufacturing and operations plan
–
–
–
–
Geographic Location
Facilities and improvements
Strategy and plans
Labor Force
• Management team
–
–
–
–
–
–
Organization
Key management Personnel
Management compensation and ownership
Board of directors
Management assistance and training needs
Supporting professoinal services
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Business Plan a more detailed
Table of Contents (4)
• Overall schedule
• Critical risks and problems
• Community benefits
– Economic benefits
– Human development
– Community development
• The financial plan
–
–
–
–
–
Profit and loss forecast
Pro forma cash flows analysis
Pro forma balance sheets
Breakeven chart
Cost control
TE - II - BP -
Business Plan a more detailed
Table of Contents (5)
•
•
•
•
Pro Forma Income Statements
Pro Forma Cash Flows Statements
Pro Forma Balance Sheets
Breakeven Chart
• PROPOSED COMPANY OFFERING 24
–
–
–
–
Desired financing
Securities offering
Capitalization
Use of funds
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Exhibit 1 Pro Forma Income
Statements
1
2
3
1st Year - Months
4
5
6
7
8
9
10 11 12
1Q
2nd Year - Quarters
2Q
3Q
4Q
Sales
Less:
Discounts
Less:
Bad Debt Provision
Less:
Materials Used
Direct Labor
Manufacturing Overhead (2)
Other Manufacturing
Expense (Leased Equip.)
Total Cost of Goods Sold
Gross Profit (or Loss)
Less:
Sales Expense
Engineering Expense
General and Administrative
Expense (3)
Operating Profit (or Loss)
Other Expense (e.g.,
Less:
interest, depreciation)
Profit Before Taxes (or Loss)
Income Tax Provision
Profit (Loss) After Taxes
(1) See also the Financial Statement Guidelines you received at the workshop, to decide which is more appropriate for your venture.
(2) Includes rent, utilities, fringe benefits, telephone.
(3) Includes office supplies, accounting and legal services, management, etc.
TE - II - BP -
3rd Year - Quarters
1Q
2Q
3Q
4Q
1
2
3
EXHIBIT 2
PRO FORMA CASH FLOWS
1st Year - Months
4
5
6
7
8
9 10 11 12
1Q
Cash Balance: Opening
Add:
Cash Receipts
Collection of Accounts
Misc. Receipts
Bank Loan Proceeds
Sale of Stock
Total Receipts
Less:
Disbursements
Trade Payables
Direct Labor
Manufacturing Overhead
Leased Equipment
Sales Expense
Warranty Expense
General and Administrative
Expense
Fixed Asset Additions
Income Tax
Loan Interest @___%
Loan Repayments
Other Payments
Total Disbursements
Cash Increase (or Decrease)
Cash Balance: Closing
TE - II - BP -
2nd Year - Quarters
2Q
3Q
4Q
3rd Year - Quarters
1Q
2Q
3Q
4Q
EXHIBIT 3
PRO FORMA BALANCE SHEET
1st Year - Quarters
2nd Year
1Q
2Q
3Q
4Q
ASSETS
Current
Marketable Securities
Accounts Receivable
Inventories
Raw Materials and Supplies
Work in Process
Finished Goods
Total Inventory
Prepaid Items
Total Current Assets
Plant and Equipment
Less:
Accumulated
Depreciation
Net Plant and Equipment
Deferred Charges
Other Assets (Identify)
TOTAL ASSETS
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes Payable to Banks
Accounts Payable
Accruals
Federal and State Taxes
Other
TOTAL CURRENT LIABILITIES
Long Term Notes
Other Liabilities
Common Stock
Capital Surplus
Retained Earnings
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
TE - II - BP -
3rd Year
German version of a sales plan
Die Umsatzplanung- Existenzgründer
alle Beträge verstehen sich ohne MwSt.und in EUR
Umsatz **
Materialeinsatz
Rohertrag *
Personalkosten **
Deckungsbeitrag II
Umsatz **
Materialeinsatz
Rohertrag *
Personalkosten **
Deckungsbeitrag II
Umsatz **
Materialeinsatz
Rohertrag *
Personalkosten **
Deckungsbeitrag II
Umsatz **
Materialeinsatz
Rohertrag *
Personalkosten **
Deckungsbeitrag II
Umsatz **
Materialeinsatz
Rohertrag *
Personalkosten **
Deckungsbeitrag II
Umsatz **
Materialeinsatz
Rohertrag *
Personalkosten **
Deckungsbeitrag II
Produkt/Dienstl. Einheit/Lohnstd.
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0,00
0,00
Produkt/Dienstl. Einheit/Lohnstd.
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0,00
Produkt/Dienstl. Einheit/Lohnstd.
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Produkt/Dienstl. Einheit/Lohnstd.
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Produkt/Dienstl. Einheit/Lohnstd.
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0,00
Produkt/Dienstl. Einheit/Lohnstd.
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0,00
Preis/Stck/Std.
Gesamterlöse p.a.
0,00
0,00
0,00
0,00
0,00
0,00
Fehlerhinweise
0,00
TE - II - BP -
Februar
Januar
Februar
Januar
Februar
Januar
Februar
Januar
.
3. Planjahr für Produktart I / Dienstleistung I
März
0,00
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0,00
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.
Februar
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0,00
0,00
0,00
.
2. Planjahr für Produktart II / Dienstleistung II
März
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Fehlerhinweise
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2. Planjahr für Produktart I / Dienstleistung I
März
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1. Planjahr für Produktart II / Dienstleistung II
März
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Fehlerhinweise
.
1. Planjahr für Produktart I /Dienstleistung I
März
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
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0,00
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0,00
0,00
0,00
Preis/Stck/Std.
Gesamterlöse p.a.
0,00
0,00
0,00
0,00
0,00
Januar
0,00
Preis/Stck/Std.
Gesamterlöse p.a.
0,00
0,00
0,00
0,00
0,00
Fehlerhinweise
0,00
Preis/Stck/Std.
Gesamterlöse p.a.
0,00
0,00
0,00
0,00
Februar
0,00
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0,00
0,00
Preis/Stck/Std.
Gesamterlöse p.a.
0,00
0,00
0,00
0,00
0,00
Januar
0,00
Preis/Stck/Std.
Gesamterlöse p.a.
0,00
0,00
0,00
0,00
0,00
Fehlerhinweise
3. Planjahr für Produktart II / Dienstleistung II
März
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
German Version of a
five year overview
5-Jahresübersicht
in Millionen CHF
1998
1999
2000
2001
2002
14.376
4.616
3.630
2.040
24.662
16.487
5.282
3.649
2.149
27.567
17.686
6.252
3.571
1.163
28.672
18.723
6.900
3.540
29.163
19.095
7.239
3.391
29.725
445
8.799
1.017
10.261
455
9.326
1.090
10.871
509
9.012
1.266
10.787
513
9.000
1.282
10.795
532
9.067
1.439
11.038
Nordamerika
Lateinamerika
8.698
2.455
10.130
2.577
10.636
2.928
11.264
2.827
11.297
2.393
Japan
Übriges Asien
Asien
1.156
1.297
2.453
1.460
1.649
3.109
1.580
1.814
3.394
1.589
1.829
3.418
2.243
1.805
4.048
795
24.662
880
27.567
927
28.672
859
29.163
949
29.725
858
439
442
144
1.883
963
568
450
165
4
2.150
1.132
603
372
68
8
2.183
1.051
558
284
38
1.931
1.047
666
298
33
2.044
Verkäufe nach Divisionen
Pharma
Diagnostics
Vitamine und Feinchemikalien
Riechstoffe und Aromen
Total
Geografische Verteilung der Verkäufe
Schweiz
Europäische Union
Übriges Europa
Europa
Afrika, Australien und Ozeanien
Total
Investitionen in Sachanlagen
Pharma
Diagnostics
Vitamine und Feinchemikalien
Riechstoffe und Aromen
Übrige
Total
Geografische Verteilung der Investitionen in Sachanlagen
Schweiz
Europäische Union
Übriges Europa
Europa
295
703
28
1.026
335
826
30
1.191
361
731
31
1.123
272
613
51
936
298
598
79
975
Nordamerika
Lateinamerika
591
98
668
133
610
229
717
138
783
115
Japan
Übriges Asien
Asien
46
95
141
59
65
124
53
120
173
45
67
112
81
62
143
27
1.883
34
2.150
48
2.183
28
1.931
28
2.044
Afrika, Australien und Ozeanien
Total
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